What is the VAT domestic reverse charge for construction services and how will it affect my business?

The VAT domestic reverse charge moves the responsibility of reporting VAT away from the subcontractor and on to the contractor when working within the construction industry.

Your business will be affected if:

  • The supply of services falls within the scope of the Construction Industry Scheme
  • The supply is standard or reduced rated for VAT
  • Both the supplier and receiver of the services are VAT registered

The end user, typically the private customer, will not be impacted by the use of the domestic VAT reverse charge.

Supply ChainNormal VAT RulesDomestic Reverse Charge
VAT-registered SubcontractorVAT charged on invoice to ContractorNo VAT charged on invoice to Contractor.   VAT reverse charge applies.
VAT-registered ContractorReclaims VAT on Subcontractor invoice.       VAT charged on invoice to Customer.Contractor declares VAT on behalf of Subcontractor and reclaims VAT as if it had been charged (zero net effect).   VAT charged on invoice to Customer.
Private Customer (end user)Customer pays fee plus VAT.Customer pays fee plus VAT.

More detailed guidance can be found at https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services.

Please contact us if you need help with applying the VAT domestic reverse charge.